How to Make Automated Trading Software

Search for the Right Provider

Finding the right provider is the first and one of the most crucial steps on this journey. At the very beginning, there is a strong need to define your short-term and long-term objectives clearly. You may start researching what various providers offer and then opt for the most suitable choice. Analyzing each software in terms of availability, cost, user-friendliness, scalability, and customization tools is a great contributor to your decision-making. This approach also usually implies technical analysis, algorithmic trading, or a combination of both. You can also look for customer reviews and make a performance comparison of the available automated trading software products. When it comes to the final decision, you may focus primarily on your goals, strategies, and market perspectives.

Brainstorm Ideas

After you find a software provider and get familiar with the user interface, you can prioritize ideas and craft your plan for future automated trading software. There are several popular models, including VWAP (Volume Weighted Average Price), TWAP (Time Weighted Average Price), Arrival Price, Execution Time Weighted Average Price (EWAP), Benchmark Volume Weighted Average Price (VWAP), Implementation Shortfall, or Trading Range.

Each and every one of these models has different characteristics that suit different trading strategies. For example, VWAP relies on the market volume and provides an average weighted price of a security over a certain period of time. While choosing the right model, you may consider the liquidity of the market and the cost of trading. A model with a higher level of liquidity might require more resources, whereas one with a lower level of liquidity might be more cost-efficient. For example, TWAP is less expensive but more prone to slippage. At the same time, VWAP has a higher chance of getting superior execution while balancing the liquid and cost factors.

Launch Backtesting

Backtesting is a baseline for the ongoing support of your automated trading system. Regardless of whether you’re starting from scratch with your own automated trading product or deploying an available solution, backtesting makes it possible to experiment with different strategies. Although it is impossible to predict how a strategy will perform with 100% accuracy, backtesting does let you get a realistic gauge of how an automated system will fare under certain conditions. A reliable backtesting process can help you make a system with more robust performance, better risk management, and fewer errors. Numerous software packages allow you to test out unusual scenarios that would not be practical with live trading and data-mine historical prices to develop and test a trading strategy that lives up to your needs.

Finetune Risk Management

Risk management is an indispensable part of every trading experience. Effective stop loss, lending indicators, and VaR (Value at Risk) are all essential components for any successful automated trading software. Stop loss orders set a level of maximum loss that you are willing to accept, limiting the losses that may occur. Likewise, lending indicators can inform traders when they should be entering or exiting trades and may also offer valuable insight into market trends. As another risk management tool, VaR enables traders to assess the risks associated with each transaction and creates an estimate of the likely loss in portfolio value over a given time period. In addition to this, algorithmic elements can be programmed to recognize profitable opportunities and encourage automated trading software to execute trades accordingly.